For this week’s RITM seminar, Matthieu Crozet from the University of Paris Sud will be presenting “Collateral Damage: The impact of the Russia sanctions on sanctioning countries’ exports” (with Julian Hinz). The RITM seminar will be on Thursday, June 23, in Imbert room, from 2 to 3.30 pm.
Sanctions are one of the favorites in the toolbox of foreign policy. In a diplomatic conflict, they aim to elicit a change of policies of foreign governments by damaging their economy. However, they are not costless for the sending economy, where domestic firms involved in business with the target countries might incur collateral damages. This paper evaluates the cost, in terms of export losses, of the diplomatic crisis, started in 2014, between the Russian Federation and 37 countries (including the USA, the EU and Japan) over the Ukrainian conflict. We first gauge the global impact of the sanctions regime using a structural gravity framework and quantify the trade loss in a general equilibrium counterfactual analysis. We estimate this loss at 60.2 billon USD over the period from 2014 until mid-2015. Interestingly, we find that the bulk of the impact stems from products that are not directly targeted by Russian retaliations—suggesting that most of the loss is not attributable to the Russian retaliation, but to Western sanctions. We then investigate the underlying mechanism at the firmlevel using French customs data. Results indicate that neither consumer boycotts nor perceived country-risk can account for the decline in exports of non-targeted products. Instead, the disruption of the provision of trade finance services is found to have played an important role.
The program of the RITM Seminar is here.